Farmland Index Reaches Growth Neutral

Posted on 08/23/2020 3:32 PM

Creighton University’s Rural Mainstreet Index (RMI) increased slightly to a weak level from July’s frail reading in August. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, August’s  index represented the sixth straight month with a reading in a recessionary economic zone, reports Ernie Goss, who conducts the monthly survey.

The overall index for August increased slightly to 44.7 from July’s 44.1, but is still well below growth neutral, though it was up from July’s 44.1 and April’s record low 12.1. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

“Farm commodity prices are down by 10.4% over the last 12 months. As a result, and despite the initiation of $32 billion in USDA farm support payments in 2020, only 8% of bankers reported their area economy had improved compared to July, while 18.4% said economic conditions had worsened,” says Goss.

State’s have varied in the impact of COVID-19 on the economy depending on government enforced shutdowns, he notes. For example, Todd Douglas, CEO of the First National Bank in Pierre, South Dakota, states, “As for South Dakota, we were a state that did not shut down. Western part of the state has seen a significant boost to the economy due to tourism from shut-down states.”   

Farming and ranching: For only the second time in the last 81 months, the farmland price index moved above growth neutral with an August reading of 50.1, up from July’s 45.6.  

Approximately 45.8% of bank CEOs with ethanol plants in their area report temporary shutdowns. The remaining 54.2% indicate ethanol production expanding at a slow pace.
The August farm equipment-sales index fell to 32.8 from 34.4 in July. This marks the 83rd straight month the reading has remained below growth neutral 50.0.  

Banking: Borrowing by farmers expanded for August, but at a slower rate than in July. The borrowing index fell to 53.9 from July’s 57.4. The checking-deposit index advanced to 78.9 from 64.7 in July, while the index for certificates of deposit and other savings instruments slumped to 40.8 from 52.9 in July.      

This month, bankers estimated that farm loan defaults would rise by 5.3% over the next 12- month period. This is up slightly from the 5% recorded last month, and from 4.8% registered one year ago.

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